International Journal of Application or Innovation in Engineering & Management (IJAIEM)
Web Site: www.ijaiem.org Email: editor@ijaiem.org, editorijaiem@gmail.com
Volume 2, Issue 2, February 2013
ISSN 2319 - 4847
A COMPARATIVE STUDY OF GROWTH
ANALYSIS OF PUNJAB NATIONAL BANK
OF INDIA AND HDFC BANK LIMITED
Dr. R. Gupta1, Dr.N.S. Sikarwar2
1
Sr.Assistant Professor, Department of Management, Haryana College of Technology and Management, Kaithal (Haryana),
India.
2
Associate Professor, Department of Management, Haryana College of Technology and Management, Kaithal (Haryana),
India.
ABSTRACT
The Banking industry occupies a unique place in a nation’s economy. A well developed banking system is a
necessary precondition for economic development in a modern economy. The major role of banks is to collect
money from the public in the form of deposits and then along with its own funds to serve the demands of the
customers quickly, paying interest for the deposits and to meet out the expenses to carry out its activities. For this
purpose, banks maintain adequate liquidity and earn profits from its activities. Profit is the main reason for the
continued existence of every commercial organization and profitability depicts the relationship of the absolute
amount of profit with various other factors. In any case, compared to other business concerns, banks in general
have to pay much more attention for balancing profitability and liquidity. Liquidity is required to meet out the
prompt demands of customers and profitability is required to meet out the expenses of banks. Hence the research
paper is an effort to study the Growth rate in Punjab National Bank of India and HDFC Bank limited as both the
banks are giant banks in public and private sector, so a study of Growth analysis of both the banks for a period of 10
years, i.e. from 2000 to 2010 is made. The main parameters of growth in banks are Net profit growth, Net assets
growth, EPS growth and Reserve and Surplus growth and the results reveal that in terms of the parameters defined
HDFC Bank has performed much better than PNB Bank.
Key Words: Net Assets, EPS, Reserves, Surplus, Growth.
INTRODUCTION
The Banking industry occupies a unique place in a nation’s economy. A well developed banking system is a necessary
precondition for economic development in a modern economy. The amount of earnings indicates the efficiency of the
organization. The larger the profits, the more efficient and profitable the organization becomes. That is why
profitability is considered, to a large extent, one of the main criteria to adjudge the extent to which the management has
been successful in the effective utilization of the funds available with the enterprise. As regards Punjab National Bank,
it was established in 1895 and it holds the distinction of being the first Indian bank to have been started exclusively
with Indian capital. Bank has a strong capital base with capital adequacy ratio of 12.42%. The bank has over 60 million
customers through 5286 offices including 421 extension counters. The bank has a paid up capital of ` 316.81 crore. As
regards HDFC Bank, it was established by Reserve Bank of India in 1994. It was the first bank to get approval from
RBI to set up in private sector. Bank has a nationwide network of 2000 Branches and 5,998 ATM's in 996 Indian towns
and cities. The authorized share capital of the bank is ` 550 crore. The paid-up capital of the bank is ` 459, 69, 07,030.
Hence the research paper is an effort to study the Growth rate in Punjab National Bank and HDFC Bank. As both the
banks are giant banks in public and private sector, so a study of Growth analysis of both the banks for a period of 10
years, i.e. from 2000 to 2010 is made. The main parameters of growth in banks are Net profit growth, Net assets
growth, EPS growth and Reserve and Surplus growth. The statistical analysis is made on the bases of growth rate based
upon correlation technique.
OBJECTIVES OF THE STUDY
1. To study the growth rate of both the banks under study.
2. To compare the growth of the banks in private and public sector.
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International Journal of Application or Innovation in Engineering & Management (IJAIEM)
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Volume 2, Issue 2, February 2013
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HYPOTHESIS
1. The Growth rate of net profits of both the banks under study is same.
2. The Growth rate of net assets of both the banks under study is same.
REVIEW OF LITERATURE
Nag and Das (2002) studied the impact of imposition of capital requirement norms on flow of credit to the business
sector by public sector banks of India and the results showed that in the post reform period, public sector banks did shift
their portfolio in a way that reduced their capital requirements.
Sanjay J. Bhayani (2006) in his study, “Performance of the New Indian Private Banks: A Comparative study”. The
study covered 4 leading private sector banks- ICICI, HDFC Bank, UTI and IDBI. The result showed that the aggregate
performance of IDBI Bank is the best among all the banks. Chidambaram R.M and Alamilu (1994), the study
“Profitability in Banks, a matter of survival”, revealed that the profitability of public sector banks is low as compared to
private sector banks.
CONCEPT OF GROWTH
Growth in relation to a banking organization relates to increase in the business over a period of time. Year to year
growth is calculated and targets are fixed to evaluate the performance and standing of the bank in relation to industry,
in relation to competitors, in relation to branch. Growth means the increase in advances and deposits of a bank in
current year in comparison to previous year, Growth also means the increase in revenue profits, earning of the Bank in
comparison to previous year. It also evaluates the increase in business per employee of the bank in comparison to the
previous year. Operating profits, net profits, earning per share, dividend per share, return on capital employed, return
on equity. Interest coverage ratios are the other yardsticks to measure the growth of a business entity over a period of
time. Profit maximization and wealth maximization are the ultimate goals of an organization because it leads to the
growth of the organization to a large extent. As regards Growth, it can be studied from various angles like in terms of
sales, net profit, reserve and surplus, earning per share, internal growth & sustainable growth. As a matter of fact, the
desired growth rate and the debt financing both are interrelated. The higher the growth rate, the greater would be the
need for external financing if other things remaining the same or vice-versa. Balanced Debt equity mix and its
relationship with growth may better be studied in terms of net assets growth, fixed assets growth, net profit growth,
revenue growth, reserves & surplus growth and earnings per share growth.
NET ASSETS GROWTH
Net assets is the sum total of asset side of the balance sheet excluding any provision for depreciation fund or the assets
shown at book value less depreciation charges or if the market value of the asset is to be disposed off less any expected
loss or provision against that asset. This total of the asset side exclude the fictitious assets if there is any shown in the
asset side of the balance sheet like preliminary expenses, discounts on issue of shares or debenture, interest paid out of
capital etc. Net assets include both types of assets i.e. fixed asset as well as the current asset possessed by the business
entity owned by the concerned. This asset provides the base for making the concern capable for carrying out its business
activities for earning revenue and consolidate its position in the years to come. These assets are possessed by the
business from various sources shown in the liability side of the concern i.e. owners funds and borrowed funds or the
internal resources of the business created out of profits. As regards Net Assets of Punjab National Bank & HDFC Bank
Limited, it has been computed by deducting all liabilities from total assets and shown in Table 1
Table 1: Net Assets
Year
Punjab National Bank
HDFC Bank
Net Assets
` in lac
Total Assets
` in lac
% of Net
Assets to
Total Assets
Net Assets
Total Assets
` in lac
` in lac
% of Net
Assets to
Total Assets
2000-01
266920
6351922
4.20
92376
1561733
7.20
2001-02
338068
7291466
4.64
195133
2378738
9.04
2002-03
403299
8822180
4.57
225174
3042408
8.06
2003-04
501181
10233174
4.90
269333
4230699
7.78
2004-05
816130
12624128
6.46
452028
5142900
9.76
2005-06
937636
14526738
6.45
529960
7350639
9.53
2006-07
1043546
16242249
6.42
643315
9123561
7.05
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Volume 2, Issue 2, February 2013
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2007-08
1231835
19902036
6.19
1149724
13317661
8.63
2008-09
1465363
24691862
5.93
1505273
18327077
8.21
2009-10
1772292
29663277
5.97
2152249
22245857
9.67
(Source: Punjab National Bank and HDFC Bank; Annual Report- various issues.)
Table 1 reveals that Net Assets of Punjab National Bank indicated an annual compound growth rate of 20.50 percent;
whereas that of HDFC Bank indicated an annual compound growth rate of 37 percent. All this indicated that net assets
of HDFC Bank Limited increased quicker than that of Punjab National Bank Limited. Growth rate of Net Assets of
Punjab National Bank and HDFC Bank has been computed by way of annual compound growth rate with the help of
the following formula:
Where r = Average rate of Growth
pn = value at the end of the period
p0 = value at the beginning of the period
n = Number of years
Using logarithms Growth rate is calculated as
Growth rate of Punjab National Bank = 20.50%
Growth rate of HDFC Bank = 37%
As regards Net Assets Growth of Punjab National Bank & HDFC Bank Limited, it has been computed with the help of
geometric mean.
As regards Net Assets Growth of Punjab National Bank & HDFC Bank Limited, it has been computed with the help of
geometric mean and has been shown in Graph – 1
Graph – 1
Growth Rate of Fixed Assets
Any business entity needs for its smooth functioning two types of assets i.e. fixed assets as well as current assets. Fixed
assets are those which are purchased once for the business and remains with it for a long time to come. They are also
known as dead investment as once the money invested in these assets cannot be used for any other purpose very easily.
As for example land, building, plant and machinery, patents, trade mark, furniture, vehicle etc. the building once
constructed for the business cannot be constructed or carried to any other place. Such assets help the organization to
carry on its production related operations. These are generally shown in the assets side of the balance sheet as follows:
Gross Block --------------------------------Less Depreciation---------------Net Block---------------Gross Block refers to the total cost of acquisition of all the, fixed assets. Out of this actual acquisition cost, accumulated
depreciation up to date is deducted. The resultant net block indicated the net fixed assets. Intangible assets of the
organization are also of permanent nature. Growth Rate of Net Block can be worked out by dividing the net block assets
of the current year by the net fixed assets of the base year as shown below:
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Volume 2, Issue 2, February 2013
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As regards Net Block of Punjab National Bank & HDFC Bank Limited, It has been worked out and shown in Table 2
Table 2: Fixed Assets to Total Assets
Punjab National Bank
HDFC Bank
Year
Fixed
Assets
Total Assets
` in lac
` in lac
% of Fixed
Assets to
Total Assets
Fixed Assets
` in lac
Total Assets
` in lac
% of Fixed
Assets to
Total Assets
2000-01
72392
6351922
1.14
28974
1561733
1.86
2001-02
75854
7291466
1.04
37110
2378738
1.56
2002-03
88470
8822180
1.00
52858
3042408
1.74
2003-04
89984
10233174
0.88
61691
4230699
1.46
2004-05
96523
12624128
0.76
70832
5142900
1.38
2005-06
103023
14526738
0.71
85508
7350639
1.16
2006-07
100983
16242249
0.62
96667
9123561
1.06
2007-08
231552
19902036
1.16
117513
13317661
0.88
2008-09
239711
24691862
0.97
170673
18327077
0.93
2009-10
251347
29663277
0.85
212281
22245857
0.95
(Source: Punjab National Bank and HDFC Bank; Annual Report- various issues.)
Table 2 reveals that fixed assets of Punjab National Bank increased from ` 72392 lac in 2000-01 to ` 251347 lac in
2009-10 indicating an increase of 2.47 times; whereas that of HDFC Bank Limited increased from ` 28974 lac in 200102 to ` 212281 lac in 2009-10 certifying an increase of 6.33 times over the corresponding period. All this indicated that
fixed assets of HDFC Bank Limited increased more as compared to that of Punjab National Bank.
The entire situation can be reflected at a glance with the help of the Graph – 2
Net Profit / (Loss) Growth
In order to study whether the net profit of an organization has been witnessing growth or not, net profit growth is
calculated with the help of Growth rate;
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Growth rate of; Punjab National Bank =23.7% HDFC Bank =30.2%
Relevant formulas have been explained in Chapter II; Techniques of Analysis. Net profit growth in respect of Punjab
National Bank and HDFC Bank has been calculated by taking Net Profit after Tax so as to adjudge the absolute growth
of net profit after tax as shown in Table 3
Table 3: Net Profit / (Loss) Growth
Year
Punjab National Bank
HDFC Bank
Net Profits
` in lac
% increase over
previous years
Net Profits
` in lac
% increase over
previous years
2000-01
46364
---
21012
---
2001-02
56239
21.30
29704
41.36
2002-03
84220
49.75
38760
30.48
2003-04
110869
31.64
50950
31.44
2004-05
141012
27.18
66556
30.63
2005-06
143931
2.07
87078
30.83
2006-07
154008
7.00
114145
31.08
2007-08
204876
33.03
159018
39.31
2008-09
309088
50.86
224494
41.17
2009-10
390536
26.35
294870
31.34
(Source: Punjab National Bank and HDFC Bank; Annual Report- various issues.)
Table 3 reveals that the Net Profit of Punjab National Bank increased from ` 46364 lac in 2001-02 to ` 390536 lac in
2009-10 indicating an increase of 7.42 times whereas that of HDFC Bank increased from ` 21012 lac in 2000-01 to `
294870 lac in 2009-10 indicating an increase of 13.03 times over the corresponding period. Net profit growth rate of
Punjab National Bank is 23.7% and that of HDFC Bank is 30.2%, all this certify that HDFC Bank stands better than in
view of stability and profitability. Hence the hypothesis “The Growth rate of net profits of both the banks under study is
same” is rejected. The entire situation can be reflected at a glance with the help of the Graph – 3
Earning Per Share Growth
It is the profits before tax but after interest divided by the number of shares issued by the business house. Higher
earnings per share show the effectiveness of the management and their policies and decision making. Earnings per
share when high increases the goodwill, overall confidence of the investor to remain with the company and the
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potential of future growth of the business house. This depends upon the fundamentals of the business like competition,
environment, and nature of the product, technology used and applied and long standing history of the enterprise.
More the earning per share better are the performance and prospectus of the company. This higher EPS has a favorable
impact on the market price of share. As regards EPS of Punjab National Bank and HDFC Bank, it has been calculated
as shown in Table 4
Table 4: Earnings per Share
Year
Punjab National Bank
HDFC Bank
` per share
% increase over
previous years
` per share
% increase over
previous years
2000-01
21.85
----
8.64
---
2001-02
26.50
21.28
11.01
27.43
2002-03
32.08
21.05
13.75
24.88
2003-04
41.79
30.26
17.95
30.54
2004-05
52.93
26.65
22.92
27.68
2005-06
45.65
-13.75
27.92
21.81
2006-07
49.84
9.17
36.29
29.97
2007-08
64.98
30.37
46.22
27.36
2008-09
98.03
-49.13
52.85
12.54
2009-10
123.86
26.34
67.60
27.90
(Source: Punjab National Bank and HDFC Bank; Annual Report- various issues.)
Table 4 reveals that the Earning per share of Punjab National Bank increased from ` 21.85 in 2001-02 to ` 123.86 in
2009-10 indicates an increase of 4.67 times whereas that of HDFC Bank increased from ` 8.64 in 2000-01 to ` 67.60
in 2009-10 indicating an increase of 7.82 times over the corresponding period. All this certify that HDFC Bank
Limited stands better than Punjab National Bank in view of earning per share.
The entire situation can be reflected at a glance with the help of the Graph – 4
Reserve and Surplus Growth
Various types of reserves and profits of the current year as well as the previous year balance of profits are shown under
this head. This consists of ; Capital reserve which includes Capital Redemption Reserve, Securities Premium, Other
reserve less debit balance of profit and loss account, appropriation account (if any). Surplus means credit balance of
profit and loss account. Proposed addition to reserve, Sinking Fund when the reserves are invested outside the business
in securities or tangible assets, are known as reserve fund. They may be for specific purpose or general purpose. The
reserve and surplus is the 2nd head in the liability side of the balance sheet of a company. Various types of reserve and
profits of the current year as well as the previous year balance of profits are shown under this head. This shows the
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following items. Capital reserve, Capital redemption reserve, Securities premium, Other reserve less debit balance of
profit and loss account appropriation account (if any),Surplus means credit balance of profit and loss account, Proposed
addition to reserve, Sinking fund- if the reserves are invested outside the business in securities or tangible assets these
are known as reserve fund. They may be for specific purpose or general purpose.
Growth Rate of Reserve and Surplus
Punjab National Bank =21.6%
HDFC Bank =41.1%
As regards Reserve and Surplus Growth of Punjab National Bank and HDFC Bank, it has been calculated as shown in
Table 5
Table 5: Reserve and Surplus Growth
Year
Punjab National Bank
HDFC Bank
Reserve and
Shareholders’
% of Reserve
and Surplus to
Shareholders
Funds
Reserve
Shareholders’
and
Funds
Surplus
Funds
` in lac
` in lac
2000-01
245696
266920
92.05
` in lac
66949
91309
73.32
2001-02
300395
321619
93.40
166091
194228
85.51
2002-03
376769
403299
93.42
196278
224483
87.44
2003-04
474650
501180
94.71
240709
268888
89.52
2004-05
784600
787752
99.60
420997
451985
93.14
2005-06
906106
937636
96.64
498639
529953
94.09
2006-07
1012016
1043546
96.98
611376
643315
95.04
2007-08
1200304
1231834
97.44
1114280
1149723
96.92
2008-09
1433833
1465363
97.84
1422095
1464633
97.10
2009-10
1740762
1772292
98.22
2106183
2151958
97.87
Surplus
` in lac
%of Reserve
and Surplus to
Shareholders
Funds
(Source: Punjab National Bank and HDFC Bank; Annual Report- various issues.)
Table 5 reveals that the Reserve and Surplus of Punjab National Bank increased from ` 245696 lac in 2001-02 to `
1740762 lac in 2009-10 indicating an increase of 6.09 times whereas that of HDFC BANK increased from ` 66949
lacs in 2000-01 to `2106183 lac in 2009-10 indicating an increase of 30.46 times over the corresponding period. And if
we compare the growth rate it is 21.6% of Punjab National Bank and 41.1% of HDFC Bank .All this certify that HDFC
Bank stands better than Punjab National Bank.
The entire situation can be reflected at a glance with the help of the Graph – 5
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Volume 2, Issue 2, February 2013
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ANALYSIS AND FINDINGS
Net Assets of Punjab National Bank indicated an annual compound growth rate of 20.50 percent; whereas that of
HDFC Bank indicated an annual compound growth rate of 37 percent. As regards fixed assets, there is an increase of
2.47 times in case of Punjab National Bank whereas that of HDFC Bank there is an increase of 6.33 times over the
corresponding period. Net profit growth rate of Punjab National Bank is 23.7% and that of HDFC Bank is 30.2%,
Earnings per share of Punjab National Bank indicates an increase of 4.67 times whereas that of HDFC Bank indicates
an increase of 7.82 times over the corresponding period. Reserve and Surplus growth rate of Punjab National Bank is
21.6% of Punjab National Bank and 41.1% of HDFC Bank. As regards Capital Adequacy, it is found that both the
banks achieved capital adequacy greater than 9% in all the years under study. But in case of HDFC Bank the CAR
17.44% shows that the bank has made more than requirement, resulting the insufficient utilization of resources.
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